Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘technical analysis’

Small-Cap Industrial Play with Excellent Prospects into 2015

By for Profit Confidential

This Small-Cap Industrial Play Has Excellent ProspectsThe first-quarter gross domestic product (GDP) growth suggests some stalling in the economy, but this is expected to pass as we move forward into 2015 as the economic renewal picks up, which will generate a buying opportunity.

A small-cap stock I like as a buying opportunity and play on the economic renewal going forward is Horsehead Holding Corp. (NASDAQ/ZINC).

While the stock is up 70% from its 52-week low and has been easily outperforming the S&P 500 over the past year, I believe the stock still has decent upside potential and could be a buying opportunity, especially as the economy strengthens.

The company’s stock chart shows the steady upward trend in place since November 2012. Note the bullish golden cross with the 50-day moving average (MA) above the 200-day MA, as reflected by the blue oval. We are also seeing a bullish ascending triangle that could signal more gains ahead. A break at $18.00 could see a move to above $20.00, based on my technical analysis.

Horsehead Holding Corp Chart

Chart courtesy of www.StockCharts.com

Via its subsidiary Horsehead Corp., the company is a fast-growing producer of specialty zinc and zinc-based products made via the use of recycled materials.

In a move to improve output and efficiency, the company closed its old facility Monaca and opened a new facility named Mooresboro in North Carolina. The capacity at the new plant once it gets up to speed will be roughly 155,000 tons of zinc annually.

The opening of the new plant will aid the company in producing better fabricated steel products along with raw materials found in the manufacturing of rubber tires, alkaline batteries, paint, … Read More

Double Bottom in for Gold Prices?

By for Profit Confidential

Gold Bullion Fear Index CollapsesWhile the Federal Reserve has cut back on its money printing program, the fact of the matter is that the “official” U.S. national debt is closing in on $18.0 trillion. The unofficial national debt (when obligations like Social Security, Medicare, Medicaid, welfare, and now Obamacare are taken into consideration) is closer to $200 trillion.

The Japanese national debt just hit one quadrillion yuan.

Many countries in the eurozone are drowning under debt. The European Central Bank recently started talking about printing money to finally get the eurozone out of its mess.

All of this is very well-known to Profit Confidential readers.

Why do I bring this up again today? I’m back focusing on debt because it is becoming more and more apparent that the only way to reduce the record national debt many industrialized countries have accumulated since the Credit Crisis of 2008 is to print even more money.

And the collapse in the volatility of gold bullion prices could be pointing to just that. To see what I’m talking about, take a look at this chart:

Volatility Index - CBOE Gold INDX ChartChart courtesy of www.StockCharts.com

In April of 2013, when the sharp decline in gold bullion prices began, volatility for gold prices was very high. Since then, the volatility index for gold, an index that essentially gauges investors’ fear factor for gold bullion prices, has collapsed.

And when we look at the price chart of gold bullion (see next chart below), we see strong support for the metal just below the $1,200-an-ounce level. This level has been tested twice and on both occasions, gold failed to fall below $1,200. In technical analysis, this is … Read More

How to Profit from These Vulnerable Stocks

By for Profit Confidential

Top Plays for Weak Small-Cap & Tech StocksFolks, there is a technical breakdown on the charts of the small-cap, growth, and technology groups in the stock market. I can’t say I’m surprised, given the major run-up in 2013 and the lack of any significant stock market correction.

The fact that the majority of the high-momentum technology stocks have corrected more than 20% is a red flag that there could be more breakdowns on the charts. (Read “My Simple, Safe Investment Strategy for Playing Risky Stocks.”)

While I’m not saying that a bear stock market is on the horizon, I do suggest that the stock market risk is above-average at this time, and we could see a bigger correction pending.

On May 6, there was a downside break of the Russell 2000 to below its key 200-day moving average (MA) of around 1,114. This could signal additional downside moves. As of that time, the index was down 4.78% in 2014 and 8.56% from its record high. The previous time the index corrected 10% from its high, it was subsequently met with buying support in the stock market. Note the downward-trending channel on the Russell 2000 chart below.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

With the break, you could consider adding the iShares Russell 2000 (NYSEArca/IWM) exchange-traded fund (ETF) as a play on a possible bounce in small-cap stocks, especially if the index corrects more than 10%.

Technology also continues to be fragile, with the NASDAQ south of its 50-day MA. Watch for a possible move and testing of the 200-day MA at 3,982. This index has corrected 6.67% from its recent high and looks to be setting … Read More

Creation of Wealth Driving Airline Sector Higher

By for Profit Confidential

Top Stocks Highflying Airline SectorThe Boeing Company (NYSE/BA) has proved that the airline sector is continuing to progress after the stock easily beat on both its revenues and earnings in the first-quarter earnings season.

Strong wealth generation in the emerging markets in China and Asia are a major factor for the airline sector’s growth. Add in the global economic renewal, and you have an increased demand for air travel. The growth in Asia is particularly strong and will help to drive up the demand for capacity and routes, which will translate into more planes needed.

The airline sector was nearly dead following the tragedy of 9/11, but it has since made a steady recovery. In fact, the airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).

IATA suggests that North America will hold onto its title as the biggest airline sector market worldwide, with expected profits of around $8.6 billion in 2014. In second place will be the Asia-Pacific airline sector, earning about $3.7 billion; and Europe is expected to come in third with an estimated $3.1 billion. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

The evidence is reflected on the chart of the Dow Jones US Airlines Index below, which shows the steady uptrend since November 2012 and a bullish “golden cross,” based on my technical analysis.

Dow Jones US Airlines ChartChart courtesy of www.StockCharts.com

While Boeing is one of the top plane makers as far as wide-body jets, I also like … Read More

NASDAQ, Russell 2000 Signaling Buying Opportunity Ahead?

By for Profit Confidential

Why I'm Concerned About the Stock Markets Near-TermFolks, I’m beginning to get somewhat concerned about the stock market in the near-term. I’m not saying the stock market is going to crash, but there are some technical indications of a possible correction or adjustment in the near-term.

The S&P 500 recently traded at a new intraday record, but the key stock market indices have declined in three of the last four sessions. What makes matters worse is that the downward slide in the stock market was associated with higher-than-average trading volume, which is a bearish indicator in technical analysis, as it suggests a pick-up in selling momentum.

We all know that momentum can be good or bad depending on which way the stock market is going and whether you long or short the stock market.

What concerns me is not only what’s happening in Crimea and the concerns regarding the Federal Reserve’s recent actions, which I have previously discussed. (Read “The Stock Market Needs to Do This in 2014 Before I Invest More in It.”) Rather, what really concerns me is that we are now seeing a breakdown on the charts of the momentum technology stocks that had helped to drive up past euphoria in the stock market. We are seeing many of the high-momentum stocks fall by 10% or more. This suggests fragility and a potential downward slide coming up for the broader stock market.

Also, the disappointing initial public offering (IPO) debut of King Digital Entertainment plc (NYSE/KING) Wednesday was a red flag; it suggests that the IPO market may be losing some of its recent appeal or that traders are simply nervous about … Read More

My Top Investment Strategy for a Stalling Stock Market

By for Profit Confidential

How to Guarantee a Selling Price for Your StockThe current stock market sentiment is bullish and based on the charts, there are indications that the market wants to go higher, especially technology and small-cap stocks.

The S&P 500 is eyeing another record-high and it may just reach it by the time you read this.

While stock market investor sentiment continues to display bullish new highs and new lows, there’s also a sense that the road to higher gains will not be an easy path.

The economic renewal is maintaining a muted pace, in part due to the harsh winter conditions, but what if the economy was actually showing signs of slowing?

Jobs growth in February improved over January, but the jobs market still has not reached a level of self-sufficiency without continued help from the Federal Reserve via low interest rates.

What I expect, after looking at the stock market indices, is that we will likely see new records broken on the horizon. (Read “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”) However, the advance will be more hesitant than in 2013 and the past years, since the current bull market is into its fifth year and is very much absent of a major stock market correction, based on my technical analysis.

Given this, I’m somewhat nervous, but there are alternative investment strategies you can consider at this time.

If you feel the stock market may pause and trade in a sideways range through the spring and summer months, you may look at writing covered call options on some or all of your existing long positions that have associated options…. Read More

How Gold Has Caught Me by Surprise

By for Profit Confidential

How Tensions in Crimea Are Changing My Gold Investment StrategyI must admit that I’ve been somewhat caught off guard by the strong rally in gold so far in 2014. The yellow ore has been on a nice upward push towards the $1,400-an-ounce level; it could even take out this level and head towards some tough resistance around $1,425–$1,450.

While the rally appears to be holding, I still only view the yellow precious metal as a trade, and not a buy-and-hold for investors at this time. I would be selling into further weakness if you are holding gold or any related stocks.

What I think is driving the upward move in gold prices is the associated cautious moves in the stock market and the geopolitical tensions triggered by the situation in Crimea. If stocks can regain their enthusiasm, I would expect a retrenchment in the precious metal as money is shifted out. (Read why I feel stocks are heading higher in “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”)

My past contention was that gold was a trading opportunity. Back in late 2013, I saw a bearish “head and shoulders” formation on the chart, after which prices fell towards support at $1,200. The oversold nature was supportive of a bounce on the charts, but the gains so far this year have been much more than I would have expected, largely due to the uneasiness in equities so far.

The precious metal could see more buying should the tense situation in Ukraine and Crimea escalate following the vote on Sunday that could lead to Crimea separating and joining Russia. While there has yet … Read More

Why Investors Shouldn’t Overlook This Emerging Market

By for Profit Confidential

Three Ways to Profit from Brazil's Growing EconomyThe stock market continues to want to go higher despite the lack of any major new catalyst and the renewed tensions in the Crimea region of Ukraine.

Yet despite the bullish sentiment at this time, the gains have been much more difficult to come by, as I had predicted at the beginning of the year. This year clearly won’t be a repeat of 2013.

Now, the move of the S&P 500 to 2,000 may still occur later this year, but for greater price appreciation potential, you should look to add positions in regions around the world that are currently struggling but offer above-average longer-term potential.

Here I’m talking about the emerging markets, where we are seeing a clear buildup in wealth and consumer spending. In my view, China remains at the top of the list. (Read “Investment Opportunities in Depressed Chinese Stocks.”) Of course, the stalling economic recovery in the country despite economic growth being above 7.5% has made it more difficult to be a believer in the Far East. But its time will come again, and you will want to be there when it does.

You may be hearing pundits saying to avoid the emerging markets, but I would disagree. Yes, the emerging markets are struggling now, but that doesn’t mean you shouldn’t look for a potential buying opportunity there.

Take a look at the iShares MSCI Emerging Markets chart below, which shows the recovery from the lows in 2004 and the successive low in 2009. The index is currently moving sideways due to the uncertainties in the emerging markets, but it appears to be showing … Read More

Why It’s Clear the Bulls Are Driving the Market

By for Profit Confidential

Investing in a Bull-Driven Stock MarketAt this time last month, the stock market was full of anxiety as we were heading for one of the worst Januarys in recent memory. The talk was about how the decline in January would trigger additional selling pressure in the stock market. The Stock Trader’s Almanac suggested there was a 47% chance the stock market would decline in 2014, but I was pretty confident on the other 53% that stocks would inevitably return positive gains this year, albeit at a slower rate.

As we enter into the final stretch of the first quarter, the month of February returned some strong gains in the stock market that I must admit caught me off guard.

Now I’m not suggesting the gains are not deserved, but I am somewhat perplexed with the rate of the rally despite what I feel is a lack of any fresh new catalyst to drive stocks higher.

The S&P 500 drove to a new record-high on February 25 and looks bullish, advancing more than 3.7% in February and into positive territory for the year. The chart of the index below displays a bullish “V” formation, which has been followed by a breakout to the record-high.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The upside bullish sentiment is holding, as we continue to see the number of new highs easily outpace the number of new lows, which is positive confirmation in an up-trending stock market, based on my technical analysis.

Even the number of S&P 500 stocks trading above their respective 200-day moving averages has been on the rise and is currently above 81%, as reflected by the chart below. In … Read More

How to Play the Growth in China

By for Profit Confidential

Why Investors Shouldn't Bypass ChinaFor the first time in more than three years, Chinese stocks are beginning to show some promise for growth investors looking for opportunities outside of the United States.

The benchmark Shanghai Composite Index has moved to just above its close of 2013; hence, it’s more or less in line with the S&P 500 and Dow Jones Industrial Average.

Many of you are aware of my continued bullishness for China, as I have talked about this in recent commentaries.

We saw some encouraging estimates on Tuesday. The country’s industrial output is estimated to rise 9.5% this year, which could support gross domestic product (GDP) growth of 7.5%, according to Industry and Information Technology. (Source: “China targets factory output growth of around 9.5 percent in 2014,” Reuters, February 17, 2014.) What’s interesting is that the key areas of growth for this year include telecommunications, along with a big jump in business for software and information technology (IT).

You can play the growth in these areas via Chinese IT services firms, such as iSoftStone Holdings Limited (NYSE/ISS, $5.15, Market Cap: $297 million), a provider of IT services to clients and globally. Services include consulting and solutions, IT services, and business process outsourcing. The company is growing with its headcount increasing 27% to 17,702 in the third quarter compared to the same time in 2012. Broken done, 65.1% of the company’s global sales came from the Greater China area, 21.4% were from the U.S., Europe accounted for 7.3%, and Japan made up 5.8%.

Analysts expect iSoftStone to report revenue growth of 13.6% to $432.81 million in 2013, followed by 17.8% to $510.06 million … Read More

Upside for Oil Appears Limited, but Investments in Oil Markets Aren’t

By for Profit Confidential

Why I Believe the Upside for Oil Is LimitedOil prices have rallied back to the $100.00-per-barrel level on some near-term supply and inventory concerns.

While the upside move is rewarding the buyers of oil stocks, I don’t think oil prices are set for an extended rally.

The chart of the West Texas Intermediate (WTI) crude oil shows oil prices bouncing higher after the formation of a bullish double bottom, based on my technical analysis. And while oil prices can head higher on the chart, I just don’t see any moves being sustainable.

Light Crude Oil ChartChart courtesy of www.StockCharts.com

The catalyst for higher oil prices has more to do with tight inventories driven by a rise in demand. The inventory of oil contracted by 1.5 million barrels per day in October to December 2013, according to the International Energy Agency (IEA). The IEA suggests the demand for oil will rise by 50,000 barrels per day to 1.3 million barrels in 2014. (Source: Johnson, C. and Sheppard, D., “Robust demand tightening oil market, IEA says,” Reuters, February 13, 2014.) If this estimate pans out, oil prices could edge higher and hold above $100.00, but I doubt the move will last that long.

Now, if China jumps out of its sluggish growth (read “Investment Opportunities in Depressed Chinese Stocks”) and Europe can drive its economic renewal, then we could see brighter prospects for oil prices.

On the supply side, America is relying less on the Organization of the Petroleum Exporting Countries (OPEC) and foreign oil as American oil companies continue to squeeze more oil out of the ground, specifically shale oil.

There may even be a time down the road when … Read More

Strategies for Defending Your Portfolio in a Down Market

By for Profit Confidential

What Investors Can Learn from the Super BowlIf you watched the boring Super Bowl game on the weekend, you’d have realized that a strong and superior defense can go a long way against a sound offense. But the battle in the trenches was easily won by the defense, and it’s an analogy I use in my trading strategy.

January ended on a sour note, being the first down month since August 2013. With the losses, we are now witnessing an uprising of the bears suggesting 2014 will be a negative year for the stock market. This reasoning is based on the Stock Traders’ Almanac that suggests there is a 46% chance of losses this year. I’m not convinced the stock market is heading lower, but the current stalling and inability of the stock market to move higher is a red flag. Despite an extremely oversold technical condition, I have yet to see any signs of strong buying support emerge—and in my view, this is worrisome and likely means more losses.

The irony in January was that the S&P 500 and Dow Jones Industrial Average actually lost more ground than the higher-risk NASDAQ and Russell 2000, which only lost 1.76% and 2.89%, respectively.

The key will be to watch how the S&P 500 reacts at its key support levels around 1,750 to 1,775. We already saw a bounce off this level, and now the index is staging a retest. As I have said in a recent commentary, failure to hold could see the index fall to 1,700, based on my technical analysis.

The stock market is failing to see any major positive catalyst. Earnings season has been average … Read More

Could This Bull Market Last a Decade—Or Longer?

By for Profit Confidential

Why I Believe This Bull Market Could Have Many Years AheadHere we are in just the third week of 2014 and the media is all over the stalling in the stock market, saying that perhaps we are at the end of the bull stock market that is now in its fifth year.

I’m hearing about the low level of the S&P 500 Volatility Index (VIX), also known as a measure of fear in the stock market. Yes, it’s low and perhaps the stock market is too relaxed, but that doesn’t always imply that we are headed for a stock market correction.

Traders are also concerned with the lack of buying so far in January, which, if it ends in the red, could suggest a down year for stocks based on historical tendencies—albeit, I doubt that.

We are seeing some stalling on the charts, as the new approach to investing this year appears to be one of prudence and not bidding the stock market higher until we see evidence of a healthier economy, stronger jobs creation, and earnings/revenue growth from corporate America.

I’m not surprised by this shift, given the massive stock market gains in 2013.

The impact of the Federal Reserve and its proposed tapering timeline appears to be less of a factor this year, as it is expected that the tapering will continue. The uncertainty surrounding tapering that drove the erratic trading of 2013 is gone; traders are now discounting in the tapering. (See “Stock Market’s Dependence on Easy Money Weakening?”)

My view is that as long as the withdrawal of the bond buying is slow and the economy delivers stronger and steady growth, market participants … Read More

Why Macy’s Is Such a “Good” Retail Play

By for Profit Confidential

stocks and the larger retail sectorIn the retail sector, it’s all about vision and execution. The reality is it’s all in the details, especially in the department store sector, where it’s all about product offerings and marketing.

Of the department stores in the retail sector, Macy’s, Inc. (NYSE/M) is probably the best-managed and best-performing company. Simply take a look at rival J. C. Penney Company, Inc. (NYSE/JCP), and you’ll understand why it has been a lot better for Macy’s investors than J. C. Penney’s. (Read more of my thoughts on this in “J. C. Penney, Coach Joining the Losers in the Retail Sector?”)

While Macy’s continues to look for ways to continue its sales growth and profitability, J. C. Penney is just trying to stay afloat in the retail sector and avoid a possible bankruptcy down the road.

The chart below shows the divergence in share price between Macy’s and J. C. Penney since October 2012. Macy’s has steadily climbed, as reflected by the red candlesticks, compared to J. C. Penney, as shown by the dark green line, based on my technical analysis.

Macy's Inc. NYSE Chart

Chart courtesy of www.StockCharts.com

It’s amazing how the wrong strategy could backfire in the retail sector and cost a company like J. C. Penney billions of dollars, while rewarding a company like Macy’s for excellent execution.

Macy’s announced it would cut about 2,500 workers, which is a small fraction of its total headcount of about 175,000. The company will also look at other cost cuts that could shave about $100 million off the expense side beginning this year. (Source: “Macy’s, Inc. Outlines Cost Reduction Initiatives to Support Continued Profitable … Read More

Three Profitable U.S. Plays on the Lucrative Chinese Auto Market

By for Profit Confidential

Chinese economyIt’s no secret that China is the biggest market for numerous raw materials, such as cement, steel, coal, copper, and oil, along with end-products, such as vehicles and mobile phones.

The growth of the middle class and wages in the country is the vital attraction for companies to go and set up shop there. Credit Suisse estimates the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable gross domestic product (GDP) growth at or near the current growth rate. Moreover, the government’s strategy to drive domestic consumption will also help to push up the demand for goods and services.

An area in the Chinese economy that I continue to believe has tremendous long-term potential is the auto sector, but the short-term will pose some hurdles due to some buying limits imposed by the government.

The Chinese motor vehicle market is the largest in the world, and it continues to distance itself from the United States. The upward demand for vehicles remains in spite of the government’s efforts to limit vehicle sales in many of China’s largest cities in an attempt to cut pollution.

As a potential market for vehicles, China remains tops. Auto sales surged 16% in November following a 24% jump in October, according to the China Association of Automobile Manufacturers. (Source: China Association of Automobile Manufacturers web site, last accessed December 11, 2013.) About 1.7 million vehicles were sold for an annualized growth of 20.4 million. By comparison, sales of autos increased nine percent in the United States in November to an annualized rate of 16.4 million vehicles, according to … Read More

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